Equifax will work with consumers and businesses to help mitigate the economic impact of the coronavirus pandemic on their credit scores, the company said Tuesday.
Equifax EFX, +8.64% said that it’s working with policy makers, including Congress, the Consumer Financial Protection Bureau and the Consumer Data Industry Association (CDIA), among others, to ensure lenders and creditors help make this happen. “These are uncharted waters for everyone around the world,” said Mark Begor, chief executive of Equifax.
As the coronavirus pandemic grips the United States, the situation is looking bleak for Americans’ wallets. Jobless claims in the U.S. have surged to a 2½-year high as businesses have had to shutter during the outbreak and lay off workers. And based on Google GOOGL, +7.20% searches at least, the worst could be yet to come.
“Consumers and businesses who are, or may be, impacted by COVID-19 are encouraged to contact their lenders and creditors directly to discuss their options,” Equifax said in a statement. “Equifax is engaged with many lenders, telecom and utility providers who are offering a variety of options to help people through forbearance and modified payment plans.”
MarketWatch photo illustration/iStockphoto
‘These are uncharted waters for everyone around the world,’ said Equifax CEO Mark Begor.
Some banks, including Chase JPM, +11.89% , Citibank CITI, +13.13% and Bank of America BAC, +16.32% , have already said they will suspend the reporting of late payments to the major credit bureaus — Experian EXPN, +12.33% TransUnion TRU, +9.21% along with Equifax — due the unprecedented nature of this global health crisis and the impact on businesses.
Fannie Mae FNMA, +18.75%, Freddie Mac FMCC, +15.00% and Federal Housing Administration have instructed mortgage servicers to offer borrowers facing financial hardship with options. Mortgage borrowers can request a forbearance plan, which would reduce or suspend their mortgage payments for up to 12 months.
President Donald Trump on Tuesday said he wants to have the U.S. economy “opened up” by Easter, laying out an aggressive timetable even as the number of coronavirus cases increases. “I would love to have the country opened up, and rarin’ to go, by Easter,” which is April 12, he said in a Fox News event broadcast from the White House.
The Dow Jones Industrial Index DJIA, +11.37% recorded its best percentage gain since 1933 on renewed hope that Congress will reach agreement on a roughly $2 trillion package to rescue the economy from effects of the pandemic.
Andrew Keshner and Jacob Passy contributed to this report.
Hillary Clinton mocks President Trump for sharing his ‘medical advice’
President Donald Trump has caused more than a few raised eyebrows in recent days as he continued to tout antimalarial drug hydroxychloroquine as a potential coronavirus treatment, despite the fact that the evidence for the drug’s effectiveness remains limited. Clinton couldn’t resist chiming in.
McConnell, Pelosi and Schumer all say a deal on coronavirus stimulus is close
China will emerge from the coronavirus crisis stronger than the U.S., experts warn
The coronavirus pandemic gripping the globe may have its origins in China, but experts say that current trends indicate the crisis will leave it in a much stronger position geopolitically relative to the United States.
The coronavirus crisis has seen Bitcoin price nosedive in one of the greatest Bitcoin price crashes since its inception. With a 52% drop in price in a single week, the coronavirus has left many Bitcoin enthusiasts scratching their heads. Even the legendary crypto trader, Peter Brandt, who predicted Bitcoin’s peak way back in 2017, tweeted that he wouldn’t be shocked if it crashed to $1,000 and below.
Will Bitcoin recover from such a huge crash? And can it still be trusted to store value over time? These are just some of the questions that people are seeking to answer, and the uncertainly over the answers is part of the reason behind the huge sell-off. But before judging Bitcoin too harshly, it is worth noting that even fiat markets have crashed thanks to the coronavirus mayhem. In fact, equity markets have seen their worst crash since 2008.
Here are some logical reasons why Bitcoin is crashing:
People Prefer Holding Cash When in Crisis
The huge sell-off in both equities and cryptocurrency can be explained by the notion that cash is king. When people panic, they quickly resort to hoarding cash due to fear that the prices of their investments will nosedive. Investors are taking back their money with the intention of buying back into the market at the bottom, while the rest of us are just responding to fear and uncertainty. Additionally, Bitcoin is yet to be fully accepted as a mode of payment, and people want to have enough paper money to buy food and medicine just in case the crisis worsens by the day.
Late adopters of Bitcoin and cryptocurrencies may not appreciate the value of hodling their Bitcoin amidst the swings in the market. Analysts believe the huge sell-off is from investors that got into Bitcoin in the last 1-2 years. In their fear of losing more than they have already lost, they are cutting their losses and cashing out. Serious hodlers have been into Bitcoin for years and have already seen huge dives before, so the current crash shouldn’t make them quite as nervous. The early adopters understand from experience that every time Bitcoin goes down, it inevitably bounces back.
Cryptocurrency is a highly speculative market. This, compounded with the fact that it is relatively new when compared to other markets, makes it very volatile. Additionally, there is no central body that regulates prices. When trading on the stock market, regulating authorities can suspend trading sessions when there is an unprecedented sell-off. In fact, trading was put to a stand-still quite a number of times on the NYSE this past week to safeguard investors from losing too much due to traders that are responding to fear. Since Bitcoin doesn’t have any such body regulating it, sellers can dump their shares of Bitcoin anytime. Bitcoin is also one of the easiest markets to enter. Traders and investors do not need to have a brokerage account in order to participate in the market. This also attracts investors of all kinds of experience levels, and that contributes to the huge speculative nature of Bitcoin.
Bitcoin price has dropped significantly as a result of the coronavirus outbreak. However, price surges are anything but new in cryptocurrency. Once this crisis is over, Bitcoin and other cryptocurrencies will most likely recover as they have always done after a sharp decline. It is not clear how far Bitcoin price will drop, but, however far it drops, it will most likely bounce back. This could be a great time to buy Bitcoin and just wait for the bounce back.
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The global rout of financial markets this year is putting pressure on state and local government pension funds in the U.S., many of which were already struggling to pay for the future retirement benefits of public-sector workers.
The hit to the returns of retirement systems for firefighters, police and civil service employees could, in turn, endanger the financial health of local governments that have to pick up the tab, according to a Tuesday report penned by analysts at Moody’s Investors Service.
“Recent U.S. public pension investment losses, which we estimate are approaching $1 trillion, stand to severely compound the pension liability challenge already facing many governments,” said Tom Aaron, vice president at Moody’s, in the note.
Since the financial crisis, such concerns have been shared by municipal bond analysts who have worried a slump in public pension funding levels after a recession could hurt the overall creditworthiness of municipalities.
As of March 20, public pension plans were on pace for an average investment loss of about 21% in the fiscal year ending on June 20, according to Moody’s estimate.
In stocks, the S&P 500 SPX, +9.38% was down more than 24% year-to-date, and the Dow Jones Industrial Average DJIA, +11.37% was on pace for a more than 27% drop over the same period. The major U.S. equity benchmarks managed to roll back a chunk of their losses on Tuesday amid expectations for a fiscal stimulus package to pass Congress soon.
Managers of pension funds for state and local governments have also grappled with the issue of lower interest rates.
On one hand, the fall in Treasury yields have lifted the value of pensions’ fixed-income portfolios, serving as ballast for the broader decline in financial markets.
But this has also had the effect of ballooning the overall liabilities of public pensions by lowering the average return they can expect from bonds, forcing pension fund managers to rely on volatile equity markets and other risky assets to make up for the shortfall.
The 10-year Treasury note yield TMUBMUSD10Y, +7.65% closed at 0.813% on Tuesday, down from around 1.91% at the start of the year, based on Tradeweb data.
Moody’s noted that markets still have the potential to bounce back.
But if stocks and other risky assets fail to stage a substantial rebound and cover the lost ground, the financial hit to public pension plans could leave a hefty bill for local and state governments to pick up.
“Without a dramatic bounceback of investment markets, 2020 pension investment losses will mark a significant turning point where the downside exposure of some state and local governments’ credit quality to pension risk comes to fruition because of already heightened liabilities and lower capacity to defer costs,” said Aaron.
Investors furiously bought stocks Tuesday, as they looked ahead to a bipartisan agreement in Congress for a massive package of coronavirus relief.
The Dow Jones Industrial Average DJIA, +11.37% soared 2,113 points (or 11.4%) to close at 20,704.91, for its best one-day percentage performance since 1933. The S&P 500 Index SPX, +9.38% was up 9.4%, while the Nasdaq Composite COMP, +8.12% added 8.1%.
Senate Majority Leader Mitch McConnell, Senate Minority Leader Charles Schumer and Speaker of the House Nancy Pelosi all expressed optimism that an economic stimulus deal would soon be struck In Washington.
Meanwhile, President Trump said he wanted the U.S. to be “opened up” by Easter, April 12.
On Monday, the Federal Reserve announced a number of new measures to support the U.S. economy, including a new “Main Street Business Lending Program” through which the central bank will support lending to small and medium-sized businesses. Details haven’t yet been released.
In the stock market Tuesday, there was a rotation of buying into sectors that had been hit particularly hard since the S&P 500 reached its closing record Feb. 19:
S&P 500 sector
Price change – March 24
Price change since Feb. 19
Price change – 2020
Price change – 2019
Diggging further, here are two industries grossly affected by the COVID-19 pandemic that fared particularly well Tuesday:
S&P industry group
Price change – March 24
Price change since Feb. 19
Price change – 2020
Price change – 2019
Hotels, Resorts & Cruise Lines
Odeon Capital analyst Dick Bove had predicted “a major rally” for bank stocks before Tuesday’s open, and named four bank stocks and one preferred stock each for Fannie Mae FNMA, +18.75% and Freddie Mac FMCC, +15.00% that he considered “buys” for investors looking to trade.
Here’s a breakdown of the trading session’s 303 double-digit increases among the S&P 500:
Increase range March 24
Number of S&P 500 stocks
10% or more
15% or more
20% or more
25% or more
30% or more
35% or more
Best of the S&P 500
The following table shows the 62 components of the benchmark index that were up 20% or more Tuesday. You can scroll the table to see other time periods. All figures exclude dividends:
1. You really can’t time the market and shouldn’t try. Those who panicked and cashed out just missed a massive, 10% single day jump. And this happens in every crash. Dalbar, a financial analysis company, calculates that ordinary investors have on average missed out on most of the stock market’s long term gains over the past 30 or more years. “One major reason that investor returns are considerably lower than index returns has been the fact that many investors withdraw their investments during periods of market crises,” it wrote in a research paper sent to clients in November. “Since 1984, approximately 70% of this underperformance occurred during only 10 key periods. All these massive withdrawals took place after a severe market decline.”
2. History may be repeating itself. Historically the biggest stock market jumps have come after giant plunges. The giant crash of Oct. 19, 1987 was followed by a 10% surge in the Dow (DJIA) on Oct. 21. The worst two days of the famous Wall Street Crash of 1929, on Oct. 28 and Oct. 29, were followed by a massive 12% surge in the Dow on Oct. 30 — the market’s third best day ever in percentage terms. The 10% plunge on March 12 of this month was followed by a 10% rocket on March 13.
3. Watch out for history repeating itself still more. Historically, the biggest one-day stock market jumps have also taken place during bear markets where the stock market then resumed falling again. Since 1900, 14 of the stock market’s 20 best days have been during bear markets, where prices kept falling.
4. A major reason for the stock market’s bounce is almost certainly technical. Hedge funds and other speculators had been making big money on the way down by borrowing stock they didn’t own, selling it in the market, and getting ready to buy it back later at cheaper prices. Such so-called “short selling,” which is perfectly legal, makes money when stock prices fall. However, it leaves speculators vulnerable to a sharp jump in prices. When that happens, they rush to buy back stock and close their positions. That causes a further jump in prices, though it may be short term.
5. The rally doesn’t mean good news for the economy just yet. When that happens we’re likely to see a slump in the price of so-called “safe haven” assets, such as Treasury bonds, Treasury inflation-protected securities, also known as TIPS, and gold. Instead, Treasury and TIPS prices barely moved on Tuesday from their brace-for-impact levels, and gold jumped 10%. Treasury bonds are offering interest rates of less than 1% for another 10 years. At current levels the stock and bond markets are still forecasting prolonged economic slumps.
6. Your broker is probably reminding you about now that if you miss out on the stock market’s biggest one-day jumps you will miss out on a big chunk of your long-term returns.And that’s true. But it’s only half the story. Avoiding the worst one day crashes — such as the carnage so far this month — is also about as good for your wealth as catching the big one-day rallies. Bottom line? The worst possible outcome is to chase these rallies after they’ve taken place. You can easily end up catching the crashes and missing the bounces. That’s how you lose your shirt. Buy and hold investors, of course, can just ignore the turmoil. But those who are on the sidelines need a disciplined approach to reinvesting. One simple rule that anyone can use, and which has significant academic support, is to compare the S&P 500 SPX, +9.38% with its average price for the last 10 months, or 200 days. Get out of the stock market when the S&P 500 falls below the 200-day moving average, and stay out until it gets back above it again. One study has shown that just following this rule would have spared you all the terrible stock market crashes of the past century without sacrificing much in long-term returns. Note: Even after Tuesday’s surge, the S&P 500 would have to rise another 28%, to 3044, to reach the 200-day moving average. That would mean roughly 27,000 on the Dow DJIA, +11.37%.
7. If crashes are poor moments in which to try to “time” the market, that doesn’t mean you have to be passive. One of the advantages of a liquidation panic, as we saw in 2008 and we’ve seen again this month, is that all “risky” assets pretty much crash together — growth stocks and value stocks, big stocks and small, foreign and domestic. So if you realized only too late that you weren’t diversified, it’s not too late to move some chips around between risky assets. Sure, your S&P 500 ETF is down 26% in a month. But U.S. small-caps — as measured by the S&P 600 SML, +9.01% — are down 35%. The MSCI Emerging Markets index 891800, -5.61% has fallen 28% and the MSCI EAFE index 990300, -2.84%, which tracks big international markets such as Europe and Japan, is down 31%. So this isn’t a bad time to move money around. If all your money was in the S&P 500, this is an opportunity.
Gold-buying apps, which allow customers to buy and use the precious metal for everyday spending, are seeing record volumes as investors flock to the safe-haven commodity amid violent market swings on fears of a coronavirus-fueled global recession.
British-based startup Glint Pay Services, which operates in the U.S., the U.K. and continental Europe, said it had seen a 718% increase in clients purchasing gold over the last five weeks as volatility stemming from the coronavirus pandemic swept through markets.
“Sales are going through the roof,” Jason Cozens, founder and CEO of Glint told MarketWatch in a telephone interview. “We are breaking records everyday.”
The average gold purchase per customer has increased in the last five weeks to £2,739 from £1,373, Cozens said.
Founded in 2018, Glint allows customers to buy and sell, and spend their physical gold instantly through a debit card linked to the Mastercard MA, +16.61% network and via multicurrency app.
“Customers can buy as little as 1 cent of gold to more than $1 million and use it to buy anything from a coffee to a car,” Cozens said. “Gold is the ultimate form of money.”
To date, Glint, has more than 74,000 app downloads, “tens of thousands of registered users” and more than £69 million in transacted volume. It has plans to launch the app in Asia.
The company will roll out person-to-person payments to clients within the next couple of months so that everyone can send gold in lieu of currency payment “as easily as sending a text,” Cozens said.
Gold trading volumes at Goldex are also soaring, up 125% in 2020 compared with last year, and in a month-to-month comparison to March 2019 the amount of gold buys and sells has increased by a staggering 1,600% with a week left to go in the month.
Launched in London in 2018, Goldex’s app, which is available for both iPhone and Android, links users with the world’s biggest gold peer-to-peer markets, in London, Zurich, New York, Toronto and Singapore.
“Overall we’re seeing a substantial increase in gold demand in the first three months of the year, with this month already surpassing our previous record which was set in January 2020,” Goldex told MarketWatch. “We’re also seeing a significant increase in customers, with user registrations up 35% since the beginning of the year as investors flock to safe-haven assets amid plummeting stock markets,” the company added.
According to Goldex, the price of gold in 2020 has risen by approximately 20%, moving from £1,144.42 an ounce on Jan. 1 to a high of £1,384.56 on Tuesday. That marks a seven-year high for the precious metal after another positive performance in 2019, where gold rose 20% against the U.S. dollar despite a strong year for the U.S. equity market. Since January 2019, Gold prices have increased by almost 38% overall against the pound, and approximately 25% against the U.S. dollar.
Glint’s investors include a number of financial heavyweights, including the Tokyo Commodity Exchange; Nicholas Silitch, chief risk officer of Prudential Financial; Hugh Sloane of the hedge fund Sloane Robinson; and veteran BlackRock fund manager Evy Hambro.
In 2019 Glint successfully defended itself from a hostile takeover attempt that placed the company into administration by out an-of-court appointment without a hearing. The hostile party had purchased a Glint loan that wasn’t due for repayment until January 2020 and sought to use its position as a lender to achieve its aims.
The interest and fees had already been paid. Glint achieved a solvent exit, having raised funds to repay the loan early, plus all creditor, and the administration costs. Glint is now back growing the company with the full support of its shareholders.
Revolut joined the gold app rush earlier in March when it launched a feature allowing customers with certain types of account to access gold through its app.
The U.K.-based digital bank said subscription users can purchase and trade gold, based on live market-performance data, which it obtains through its trusted gold-services partner, the London Bullion Market Association. Gold exposure can be transferred from one Revolut user to another via the Revolut app, or converted instantly into cryptocurrency or into e-money for purchases.
The fintech charges a 0.25% markup when gold is traded during market hours and a 1% markup outside of market hours.
The coronavirus pandemic has had a highly damaging effect on the capital markets, and eventually, the effect was felt in other asset classes like cryptocurrencies as well. While this did affect the world’s biggest cryptocurrency, Bitcoin has made a remarkable recovery over the past 24 hours.
BTC gained 10% in the last 24 hours, and the total value of the entire crypto market soared by $14 billion. Bitcoin was trading at $6,580 this morning in Singapore, and it seems likely that the cryptocurrency is going to be in focus among traders today.
Rally Across the Board
It should be noted that Bitcoin was not the only major gainer in the crypto market in the past 24 hours. Other than BTC, Ethereum (ETH) soared by 7%, while Ripple (XRP) gained 5%. Ethereum is the world’s second-biggest cryptocurrency by market cap, while XRP is the third-biggest, and this sort of a move suggests that the tide might be turning for the crypto space as a whole.
Earlier in March, the crypto space took a massive beating as it suffered from a damaging sell-off due to the oil price crisis. Back on March 12, the entire cryptocurrency market lost $93.5 billion in value due to the aforementioned sell-off.
The surprising thing for many crypto analysts has been the fact that Bitcoin, which ultimately is the bell weather of the crypto market, suffered in conjunction with the stock markets. In the past, BTC had been regarded as ‘digital gold’ and as a ‘hedge’ against the equity markets by many experts, a safe-haven stock if you will. However, BTC has not behaved in this manner over the past weeks, and even after the recent rally, it is still trading at a lower level than it was at the start of this year.
The notion that coronavirus is “just a cold” or “no worse than the flu” for young people is proving to be untrue.
In New York state, where there are now more confirmed coronavirus cases than in France or South Korea, nearly 54% of hospitalized coronavirus patients are between 18 and 49, Gov. Andrew Cuomo, a Democrat, said.
In New York, there were more than 26,000 confirmed cases. Cuomo said Tuesday that the number of cases in New York was doubling every three days, and the infections could peak in 2-3 weeks, sooner than predicted, putting an even greater strain on the health-care system.
Among the latest fatalities: A 36-year-old public school principal from New York City, where there are more than 10,000 cases of coronavirus, died from coronavirus complication on Monday, the New York Post reported. It is not known whether she had any preexisting conditions.
Younger people are being hospitalized at unexpectedly high rates, particularly in New York State.
In the U.S., people under 44 make up 20% of hospitalized coronavirus patients, according to a report published by the Centers for Disease Control and Prevention last week. Patients under 65 accounted for nearly half of those admitted to hospital intensive-care units for COVID-19.
In Atlanta, a 12-year-old girl was placed on a ventilator days and fighting for her life after she was diagnosed with pneumonia brought on by a coronavirus infection. The girl, only known only as “Emma” due to privacy laws, had no prexisting conditions, her cousin Justin Anthony told CNN.
The CDC has not publicly reported the median age of coronavirus cases in the U.S. In California, the most populace state in the U.S., the median age is 47, the state’s health department reported last week: 42% of the state’s 1,733 cases of coronavirus are between ages 18 to 49.
The CDC’s study doesn’t account for patients with underlying health conditions like obesity, diabetes and cancer which increase the likelihood of contracting COVID-19, the disease caused by coronavirus. But there have also been cases of young people who were in peak physical health.
Other millennials around the world have shared their experiences of what it was like to contract coronavirus. Cameron van der Burgh, 31, an Olympic gold-medalist swimmer from South Africa, says he has been battling coronavirus for the past two weeks.
“Although the most severe symptoms(extreme fever) have eased, I am still struggling with serious fatigue and a residual cough that I can’t shake. Any physical activity like walking leaves me exhausted for hours,” he wrote on TwitterTWTR, +3.28%
“By far the worst virus I have ever endured despite being a healthy individual with strong lungs (no smoking/sport), living a healthy lifestyle and being young (least at risk demographic),” he added.“Please, look after yourself everyone! Health comes first — COVID-19 is no joke!” he added.
Van der Burgh and other millennials were believed to be less prone to developing serious health complications from coronavirus. But as the virus continues to spread in countries outside of China, where it originated, younger people are being hospitalized at unexpectedly high rates.
COVID-19, the disease caused by SARS-CoV-2, the official name for this new coronavirus, had infected at least 49,768 people in the U.S. by Tuesday afternoon and killed at least 600, according to data aggregated by Johns Hopkins University.
Worldwide, there were 407,485 confirmed cases and 18,227 deaths; 104,234 people have recovered.
“We do have an issue with younger people who are not complying,” New York Gov. Andrew Cuomo said last week. He is working on issuing an order to reduce New York City park density, where nearly half of the state’s cases exist .
What’s behind the number of young people with coronavirus?
So what’s the reason behind these cases? The fast-paced lifestyles of some young people, eating habits in the U.S. and the number of young adults not practicing social distancing may help explain why early data in China differs from the U.S. and Europe, experts suggest.
Data from China, where the pandemic originated, suggested that people in their 70s and 80s were most likely to die from the disease, and as coronavirus arrived in the U.S, health officials warned older people to take extra precautions to avoid infection.
“Disease in children appears to be relatively rare and mild with approximately 2.4% of the total reported cases reported [1,342 people] amongst individuals aged under 19 years. A very small proportion of those aged under 19 years have developed severe (2.5%) or critical disease (0.2%),” the World Health Organization reported last month.
‘We do have an issue with younger people who are not complying.’
Those figures were reassuring to many parents and young people, but they may also have led more young adults to believe they were virtually immune from coming down with more severe symptoms and, as a result, less likely to change their lifestyles to prevent the virus spreading.
“We do have an issue with younger people who are not complying,” Cuomo said last week. “So you’re not Superman, and you’re not Superwoman, you can get this virus and you can transfer the virus and you can wind up hurting someone who you love or hurting someone wholly inadvertently.”
In Italy, where the number of deaths has surpassed the number in China, the median age of those who have died is 80. But as the virus continues to spread in countries outside of China, younger people are being hospitalized at unexpectedly high rates.
But that does not explain many of the severe cases among the young. Indeed, while age may be one of the most convenient factors to study, it can be misleading, said Dr. Gregory Poland, an infectious-disease expert and director of the Mayo Clinic’s Vaccine Research Group in Rochester, Minnesota.
“You take an extremely healthy 16-year-old boy from South Korea who plays soccer and has a vegetarian diet and doesn’t do any drugs, and compare that to a 16-year-old obese type-two diabetic kid in the U.S. and you’re talking about two different ages.”
In the U.S., 18.5% (13.7 million) people between the ages of two and 19 are obese according to the CDC. That figure rises to 42.7% for all adults. When an obese person has difficulty breathing, their lungs won’t expand as much as a healthy person’s lungs, Poland said.
“No one ever heard of this virus prior to 11 weeks ago so we’re really building the plane while flying it,” Poland said. To complicate matters further, China does not have a history of transparency, he added. “I wouldn’t be surprised if we find out about more severe deaths in kids.”
In China, 51 is the median age of coronavirus cases, according to February’s WHO report. In Wuhan, the epicenter of the pandemic, 39 of the 45 designated hospitals there were reserved for patients either in severe condition or older than 65 years old.
I know that the president’s proposal for a Social Security payroll tax cut has met with little enthusiasm in Congress. But let’s put it to rest for good. It’s not the appropriate response to the COVID-19 crisis, and it’s best not to fool around with the nation’s most valuable program.
As I understand it, the initial notion was to suspend until the end of the year both the employee and employer portions of the payroll tax. That is, the government would stop collecting the 6.2% Social Security tax on the first $137,700 of earnings paid by the employer and the employee. It would also eliminate the 1.45% Medicare tax paid by both parties. Self-employed workers would be entirely relieved of the 15.3% they pay.
Such a cut would involve a massive loss of revenues. The Congressional Budget Office reports that total payroll taxes in 2019 amounted to $1.2 trillion. The proposed suspension is far more ambitious than the relief provided in 2011 and then extended through 2012, which reduced the Social Security payroll tax rate by 2 percentage points for employees and the self-employed.
In the 2011-12 period, the law provided that the Treasury make up for this reduction by reimbursing the trust fund with general revenues. Thus, the earlier cut had no direct financial implications for the short- or long-term outlook of Social Security. I presume the mechanics would work the same way under the current proposal.
The problem is that a payroll tax cut is the wrong medicine for our current problems
First, in terms of providing support to families, the major problem is people losing their jobs. A payroll tax cut only helps those who are working and not those furloughed or quarantined as a result of the virus. Second, in terms of a general stimulus, any relief would be dribbled out in bits and pieces. The worker earning $50,000 would see $74 a week from the employee tax cut. The impact of the cut of the employer’s tax would depend on the extent to which employers pass on their relief in terms of higher wages. Moreover, people do not respond very much to cuts they know are temporary.
In terms of the Social Security program, financing it through a general revenue transfer from the Treasury would be a big departure from financing it by an earmarked tax. It would break the link between contributions and benefits. In addition, while a general revenue transfer would not technically affect the program’s financial balance, it would have the potential of making Social Security’s shortfall look bigger to policy makers.
When considering changes to eliminate the long-run deficit in the program, Congress not only would have to find money to cover the 2.78% of taxable payroll reported in the 2019 Trustees Report, it would also have to consider the reaction of workers and employers when the current 12.4% payroll tax is reinstated after the suspension period ends. Solving the problem on the revenue side, which last year looked trivial, could now appear daunting.
In short, suspending the payroll tax is an ineffectual and potentially dangerous step. Let’s make sure that the idea doesn’t gain any momentum.